Today the BLS released the Consumer Price Index (CPI). The news is a little upbeat, but again it is based on energy prices driving the index. The rest of the field is a little flat. Overall the CPI rose .4% with Energy jumping 4.1%.

What is more interesting in news around this is that housing starts are on the rise and the stock market is up this morning on the announcement of the CPI data.

Yesterday the US Department of Labor – Bureau of Labor Statistics released the October report on the US Consumer Price Index (CPI). Not all that surprisingly, the number rose .27% following last months .17% growth. This marks the six straight month of growth in the CPI and that the Index is returning to the trend line prior to the October disruption.

In the chart below are two parallel lines marking a rough trend of the CPI. It appears as if the steady growth rate is returning. This is at least an indication that the economy is stabilizing.

The CPI for September was released today. Nothing all that surprising – it looks like the rebound last month towards a positive trend (perhaps not for everyone), or an upward trend continued for a second month. It appears as if the trend may be resetting with a 1.3% drop from where we were in Sept 2008.

How to use this information: Have your internal statistician look at CPI (and PPI) and see if they give you any early warning signs against some of your variable costs – raw materials, finished goods, average selling price, etc.

Does CPI move with your Cost of Goods Sold (COGS), or your margins?

Could it give you a one month warning to tighten the belts a little bit?

What is the impact on your average selling price?

Do your customers move faster than you?

Historical Trends

If we look at this from a historical perspective, we can tell there has been a stead upward trend since the mid 60’s. The variability was pretty consistent from the mid 60’s through 2004, then in 2005 it looks like the variability began to increase. These charts don’t provide us much actionable information, but show us the trend has been consistent, and that there was a disruption with the recent economic conditions. This disruption is what is highlighted in the earlier part of this blog.

Here is this morning’s press release of the August 2009. It is a great example of how not to explain complex data. Here are opening two paragraphs.

On a seasonally adjusted basis, the Consumer Price Index for all Urban Consumers (CPI-U) rose 0.4

percent in August, the Bureau of Labor Statistics reported today. The index has decreased 1.5 percent

over the last 12 months on a not seasonally adjusted basis.

The 0.4 percent seasonally adjusted increase in the CPI-U was driven by a 9.1 percent rise in the

gasoline index. This increase accounted for almost the entire advance in the energy index and over 80

percent of the overall increase. Despite the August increase, the gasoline index has fallen 30.0 percent

over the last 12 months.

On a seasonally adjusted basis, the Consumer Price Index for all Urban Consumers (CPI-U) rose 0.4 percent in August, the Bureau of Labor Statistics reported today. The index has decreased 1.5 percent over the last 12 months on a not seasonally adjusted basis.

The 0.4 percent seasonally adjusted increase in the CPI-U was driven by a 9.1 percent rise in thegasoline index. This increase accounted for almost the entire advance in the energy index and over 80 percent of the overall increase. Despite the August increase, the gasoline index has fallen 30.0 percent over the last 12 months.

In general, the CPI numbers are all over the place as a result of a rebounding economy. It is also a great example of why we need to look at individual numbers and come up with an executive overview of what this means.

Over the next couple of days, I will add more analysis here as I can dig into the numbers in greater detail. There is a ton of information here.

One item most organizations struggle with is leveraging external indicators. Early last year, the price of gas created a chain reaction. Most companies cost of goods sold increased to where they were forced to raise their prices as their margins eroded.

Even if we do that, we typically do not have a systematic way to incorporate the learning into a business process. What we would need is the ability to understand the external indicators, know of potential sources for the information, and work these into ongoing environmental scans.

What is the value of understanding how the consumer price index impacts your revenues? What happens if you were able to move before your customer in terms of supply chain interruption? In some cases, this could mean millions to your top or bottom line. There are a number of organizations that knew the market was struggling in 2008, but did nothing to prepare. And a number of those names will never be the same (GM, AIG, Circuit City, etc).

When is the last time you did a formal environmental scan, discussed the results, and put new actions into place?

Performance Management

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